Fixed deposit vs recurring deposit in India: which should you choose?
A
Amit Kumar
- Savings & Budgeting
Short answer: Choose a fixed deposit (FD) when you already have a lump sum to invest, and a recurring deposit (RD) when you want to save a fixed amount every month. For the same total money and rate, an FD earns more because the whole amount works from day one; an RD's value is that it builds the lump sum you did not yet have.
The core difference
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Fixed deposit: You deposit one lump sum and lock it for a chosen tenure (7 days to 10 years) at a fixed interest rate.
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Recurring deposit: You deposit a fixed amount every month (typically 6 months to 10 years) at a fixed rate; the bank builds the lump sum for you.
Side-by-side comparison (as of 2026)
Feature | Fixed deposit | Recurring deposit |
What you put in | One lump sum upfront | A fixed amount every month |
Best for | Money you already have | Money you are still saving |
Tenure | 7 days to 10 years | 6 months to 10 years |
Interest rate | Fixed; similar to RD for same tenure | Fixed; similar to FD for same tenure |
Absolute interest earned | Higher (full amount, full term) | Lower (each instalment earns for its own duration) |
Missed-payment risk | None | Penalty; repeated defaults can close the account |
Do RDs pay a higher rate than FDs?
No. For a comparable tenure, banks generally offer the same rate on both. An FD earns more in rupee terms only because the entire amount is invested from day one, not because the rate is higher.
How are they taxed?
Interest from both FDs and RDs is fully taxable at your income-tax slab rate. Banks deduct TDS (tax deducted at source) once annual interest crosses the threshold. TDS is an advance payment against your final tax, adjusted when you file; it does not make the interest taxed twice. If your income is below the taxable limit, submit Form 15G (or Form 15H for senior citizens) to avoid TDS.
Are they safe?
Yes. Deposits with a scheduled bank are insured up to ₹5 lakh per depositor per bank by the Deposit Insurance and Credit Guarantee Corporation (DICGC), an arm of the Reserve Bank of India (RBI), covering principal and interest together. The insurance treats FDs and RDs identically.
Which should you choose?
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Lump sum idle in your account → Fixed deposit (earns from day one).
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Saving a slice of each salary → Recurring deposit (builds the habit and the sum).
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Goal one to two years away → Recurring deposit, then roll the matured amount into an FD.
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Highest safe return on money you already hold → Fixed deposit.
Common questions
Can I break an FD or RD early? Yes, both allow premature withdrawal with a penalty, and interest is paid only for the period the money actually stayed.
What if I miss an RD instalment? Most banks charge a small penalty; repeated defaults can close the account. Use auto-debit.
Is deposit interest tax-free? No, it is fully taxable at your slab rate.
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